The Changing Phase And Face Of Household Savings
Founder & Managing Partner, Make My Wealth LLP
India has traditionally been a nation of savers, but when it came to investing, physical investments along with traditional investment products used to capture the lion's share in such savings. With physical assets like real estate requiring big-ticket investments, the investment portfolio used to be skewed towards this single asset class. Further, with eternal love towards yellow metal, Gold occupied another space primarily in the shape of gold jewellery and ornaments. Thus, historically Indian were skewed towards Physical Assets Savings.
However, as we are witnessing some key policy & reforms like Demonetisation, GST, RERA, Banking Consolidation bundled with falling interest rate scenario along with disruptive changes in trend like culture of adopting Rental services (UBER, AIR BNB, etc..) and changing habits of purchases of goods & services with pacing technology and digitalization (Amazon, Paytm, Swiggy) has brought a paradigm shift in mind-sets of investors to shift their focus from investments in Physical Assets to Financial Assets. Further, with each changing generation, importance of liquid & fast moving assets have increased as younger generations are more comfortable to deal in Financial Savings then Physical Assets like buying property or metals.
Investors have now been getting spoilt for choice, unlike having limited options like LIC, PPF, KVP, FDs & RDs, etc. Mutual Funds itself has brought a revolutionary change in options available for catering towards various Financial goals from Short Term to Long Term goals. As a result, retail investors are also steadily reflecting an increasing preference towards mutual funds to create longterm wealth.
While equity and debt markets experienced cyclic movements and stayed volatile, mutual funds have been the preferred choice, given the benefit of professional fund management for the money invested. The sustained level of monthly SIP inflows above Rs. 8,000 crores since past few months, inspite of continuing volatility in the stock markets, is reflecting a sense of matured investing behaviour amongst retailed investors. Informational campaigns like Mutual Funds Sahi Hai have further helped the cause of increasing awareness of mutual funds as a suitable investment vehicle for achieving various financial goals.
This is also getting reflected in the growth of mutual fund industry, as the overall assets under management (AUM) for the sector multifold over the last decade, showing an increase from Rs. 4 lakh crores in March 2009 to Rs. 25 lakh crores in August 2019. When it comes to investments by retail investors, the data has been more impressive, especially over the last 5 years. This period has seen the AUM of individual investors even surpass the investments by the institutional segment. From holding 48% of the investments of mutual funds in March 2014, the share has steadily grown to 58% in June 2019, as the assets grew from Rs. 4 lakh crores to Rs. 14 lakh crores with 27% CAGR. (Source – AMFI CRISIL Fact Book 2019).
Similarly, the role of SIPs has become more imminent and more prominent in helping the investors to achieve their financial goals in a systematic manner. Not only has it helped the investors ride through the market volatility in difficult times, but it has also helped the investors accumulate and channelize their savings in a better manner. With the realisation of benefits of SIP over long term, the concept of SIP has been becoming more popular across the households. Mutual fund SIPs have contributed around Rs. 2.3 lakh crores over the period of April 2016 to June 2019 towards the mutual fund inflows. Over the same period, the number of SIP accounts have almost triped from 1 crores in April 2016 to 2.73 crores in June 2019.
The mutual fund inflows have not only helped the investors but also strengthened the mutual fund industry at the backend, as the regular healthy inflows helped the markets to sustain the adverse impact of FII outflows. However, the increasing preference amongst the retail investors to invest in mutual funds would not have been possible but for the industry's evolution to make the entire process easier and convenient. The industry has also gone a step ahead in terms of the changing needs of the investors and dynamic markets. Starting with the elimination of entry loads to the graphical presentation of Riskometer for easy assessment of risk in the specific mutual fund scheme, the regulations have greatly helped in making the process more transparent and easy to understand. Further, the increased distribution footprint beyond the geographical barriers enabled with the use of technology has further helped in helping mutual funds reach different corners of the country. However, the mutual fund industry shows a great potential to grow, given the lower penetration levels as compared to other developed countries.
The writer is a Founder & Managing Partner, Make My Wealth LLP